Sunday, January 14, 2018

EXPOSED: The World Bank Manipulated and Distorted Its Competitiveness Rankings; Political Motivations

Paul Romer

The oh so fun World Bank chief economist Paul Romer is at it again.

I have featured him here in EPJ in the past. I reported last year, Romer had been stripped of his management duties after researchers rebelled against his efforts to make them communicate more clearly. And it is noteworthy that just months before joining the World Bank, he wrote a paper that trashed macroeconomics as a math-obsessed pseudoscience, though he did not go far enough.

That said, he is now directly smashing a flagship World Bank report.

Romer claims the World Bank repeatedly changed the methodology of one of its economic reports over several years in ways it now says were unfair and misleading, reportsThe Wall Street Journal.

Romer told WSJ on Friday he would correct and recalculate national rankings of business competitiveness in the report called “Doing Business” going back at least four years.

Over time, World Bank staff put a heavy thumb on the scales of its report by repeatedly changing the methodology that was used to calculate the country rankings, Romer said.

The manipulations appeared to be designed to affect the rankings specifically of Chile.

"I want to make a personal apology to Chile, and to any other country where we conveyed the wrong impression," Romer said. The problems with the report, he said, were “my fault because we did not make things clear enough.” Romer said the World Bank is beginning the process of correcting the past reports and republishing what the rankings would have been without the methodology changes. He said he couldn’t defend “the integrity” of the process that led to the methodology changes.

According to a preliminary analysis by Romer, over the past four years, Chile’s drop was driven almost entirely by adding new metrics to the index, and not by changes to standing measures of Chile’s business environment. He added that changes to the methodologies used in the rankings had the appearance of being politically motivated.

The former director of the group responsible for the report, Augusto Lopez-Claros is a former professor at the University of Chile and defended the changes made to the report during the years they took place under his leadership.

Chile’s overall ranking has fluctuated wildly between 25th and 57th since 2006. During that period, the presidency of Chile has alternated between Michelle Bachelet, of Chile’s socialist party, and Sebastián Piñera, a conservative. Under Bachelet, Chile’s ranking consistently deteriorated, while it consistently climbed under Piñera.

According to WSJ, “Doing Business” ranks nations on metrics like the number of days it takes to open a business, or the cost of getting construction permits. Countries that make their business environment worse, for instance by drawing out the permitting process, get penalized in the rankings.

The report is one of the most visible World Bank initiatives, ranking countries around the world by the competitiveness of their business environment. Countries compete against each other to improve their standings.

Recalculating the numbers could show significant changes to other countries as well.